On September 17, the Consumer Financial Protection Bureau issued proposed regulations that amend the CFPB’s existing regulations defining “larger participants” of consumer financial products it supervises by adding a new section to define larger participants of a market for automobile financing. The CFPB explains that the approximately 38 nonbank larger participants that would be captured by its proposed regulations include specialty finance companies, the captive finance arms of various manufacturers (commonly referred to as “captives”), and “buy here, pay here” finance companies.
The CFPB announced earlier this year that it would be expanding its supervisory authority in the auto finance industry beyond large banks, to encompass the larger nonbank auto lenders. Currently, the CFPB supervises large banks making auto loans, but not nonbank auto finance companies. Under the CFPB’s supervisory authority, the CFPB has the power to demand information and conduct on-site examinations of a company’s activities, and to bring enforcement actions against the company for violation of a wide range of consumer protection laws. The CFPB, however, was given the authority by the Dodd-Frank Act to supervise certain nonbanks through the use of rulemaking to define the term “larger participants” in a market. This action will represent the fifth market for which the CFPB has defined “larger participants,” having already defined the term for the credit reporting, debt collection, student loan servicing, and international money transfer markets.
As we previously noted here, here, and here, the CFPB’s announcement of the proposed rule was in conjunction with the CFPB’s statements that it has found systematic credit discrimination problems in the indirect lending market, warranting enhanced supervision of the auto finance market. The CFPB basically promises that anyone covered by the new rule can expect a searching examination of their lending activities for statistical signs of “disparities” that, the CFPB says, indicate credit discrimination against protected groups. In issuing the proposed regulations, CFPB Director Richard Cordray explained, “We took action after we uncovered auto-lending discrimination at banks we supervise. Today’s proposal would extend our oversight, allowing us to root out discrimination and ensure consumers are being treated fairly across this market.”
The CFPB’s newest proposed regulations would define the auto finance market as one that includes grants of credit for the purchase of an automobile, refinancings of such credit obligations, and purchases or acquisitions of such credit obligations (including refinancings). The regulations also would capture automobile leases and purchases or acquisitions of such automobile lease agreements as part of this market, but specifically would not include title lending. The CFPB’s rule would allow it to supervise nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases per year, resulting in approximately 38 auto finance companies being subject to the CFPB’s specific oversight. According to the CFPB, this group accounted for the origination of around 90 percent of nonbank auto loans and leases, and provided financing to approximately 6.8 million consumers in 2013.